FPinfomart.ca

Myth of cutbacks believed by many: Cause of our
running-on-the-spot incomes is high taxes to support gov't
spending
The Edmonton Journal
Fri 28 Jan
2005
Page: A18
Section: Opinion
Byline: Lorne Gunter
Column:
Lorne Gunter
Source: The Edmonton Journal

Between 1989 and 2004, the real per capita GDP of
Canada rose 25.5 per cent; that's after accounting for inflation and
population growth. Too bad you and I came ahead only 3.6 per cent during those
same years.

As a nation, we were roaring ahead. But as working Canadians, our incomes
were on a treadmill.

So who got rich, if we didn't?

Some, no doubt, will guess it was greedy corporations and their profits
that took the money.

Nope. Corporate profits over the same period -- 1989 to 2004 -- came ahead
about the same as personal income.

Remember, Canadian corporations are among the most heavily taxed in the
industrialized and developing worlds. The marginal effective tax rate on
Canadian corporations -- the full amount of corporate income taxes and taxes
on capital as a percentage of profits -- is 31.1 per cent.

According to the C.D. Howe Institute, a Toronto economics think-tank, among 20
developed and emerging economies it studied recently, Canada's corporate tax
level was third highest, behind only China's (37.7 per cent) and Germany's
(32.7 per cent).

Canadian corporations are more heavily taxed than French (27.8 per cent) or
U.K. (18.7 per cent) corporations; more heavily than Scandinavian, too:
Finland (19.9), Denmark (16.5 per cent) and Sweden (11.2 per cent).

Ireland's effective tax rate is 11.5 per cent, which may help explain why
its economy over the last decade and a half has grown so rapidly that Irish
incomes have leapt from 20 per cent below ours to 15 per cent above.

And, of course, our corporate tax levels are higher than those in the
United States -- 31.3 per cent here versus 23 per cent there. This is
significant not only because they are our leading trading partners, but also
because for many supply contracts in North America, their corporations are our
corporations' leading competitors. With our low-dollar advantage disappearing,
our highly taxed companies are going to find it increasingly difficult to
underbid their lesser-taxed American counterparts.

But no, as much as many Canadians may like to blame corporate avarice for
the failure of Canadian workers to come ahead since 1989, companies -- large
and small -- are not to blame.

Nor are women entering the workforce the cause. When talk of this income
paralysis began earlier this month, a clever journalist friend of mine
speculated that an increase of women in the workplace in the 1990s was behind
it. Individual incomes may have failed to grow, he argued, but surely family
incomes have come ahead by closer to 25 per cent as more and more women have
taken jobs.

But the main influx of women into outside-the-home occupations occurred in
the 1970s. Women as a component of the workforce grew by nearly seven
percentage points in the 1970s, by four percentage points in the 1980s and by
just over two in the '90s.

So women aren't to blame. Moreover, the stagnation is real. It is not a
matter of individual incomes stalling while family incomes have surged. Over
the last 15 years both individuals and families have failed to come ahead
financially.

The culprit is government.

According to the Toronto-Dominion Bank, which two weeks ago released a
major study analyzing the source of our running-on-the-spot incomes, the cause
is higher and higher taxes for increased government spending and for interest
payments on government debts, federal and provincial.

I know, I know, there is a common misconception that governments are
smaller than they were in the early 1990s, that public expenditures are way
down, that public services have been largely contracted out to private
companies, that public institutions have been starved and government programs
chocked off.

Not true. While there was a slowing of the growth in government
expenditures in the mid-1990s, with Ralph Klein's Alberta Advantage, Mike
Harris's Common Sense Revolution in Ontario and Paul Martin's famous 1995
budget, since 1997 government spending has raged back like a flooding river.

Federal spending is up 80 per cent in constant dollars since 1989, but so
too is Alberta government spending, and just since 1997.

Oh, yes, we are all subjected periodically to lawn signs campaigns or
billboards decrying the lack of funding for schools, universities, hospitals
or public broadcasters and the like. Yet the truth is that nearly every
department at nearly every level of government is spending more per capita now
than it did before the cutbacks of the 1994-1997 era.

The cutbacks were a pause for breath before growing governments started
devouring our incomes again.

An example of how this has happened came Thursday, again from the C.D. Howe Institute.

"School enrolment is down," according to Yvan Guillemette, a
policy analyst at the institute, but "spending is up." Between 1997 and 2004,
elementary and secondary school enrolment fell by nearly two per cent
nationally, but spending on education rose almost 12 per cent. In Alberta,
enrolment rose one per cent, but spending rocketed by 33 per cent.

If you want to know why you're working harder and earning the same as you
were in the 1980s, blame big government. It's a myth that we've starved our
public services and now have to "reinvest" in them.

Edition: Final
Story Type: Column
Length:
861 words